What is OPEC, and how does it control crude oil prices?

What Is OPEC? How the World's Most Powerful Oil Cartel Controls Crude Prices

A group of a dozen countries meets a few times a year — and their decision in that room can change the price of petrol at your local station within days. That group is OPEC.

Most people have heard the name. Far fewer understand what OPEC actually does, why it has so much power, and what happens when its members disagree.

This guide explains everything — in plain English, no jargon required.

What is OPEC? OPEC (the Organisation of the Petroleum Exporting Countries) is an intergovernmental alliance of oil-producing nations that coordinates crude oil production levels to stabilise global oil markets and influence the price of oil worldwide.

Few organisations have a greater influence on the global economy than OPEC. When OPEC decides to pump less oil, prices rise. When it floods the market, prices fall. For consumers, businesses, and governments alike, OPEC's decisions ripple through everything — from the cost of filling up your car to the price of groceries on a supermarket shelf.

What is OPEC, exactly, and why does it hold this kind of power? OPEC was founded in 1960 by five countries determined to take control of their own oil resources. Today, its members collectively sit on more than 80% of the world's proven oil reserves — giving the group extraordinary leverage over global supply. And since the early 2010s, OPEC has operated alongside Russia and other non-members in an expanded coalition known as OPEC+, making it even more influential.

Understanding how OPEC works is not just interesting history — it's essential knowledge for anyone trying to make sense of energy markets, inflation, or geopolitics. In this article, you will learn what OPEC is, which countries are members, how OPEC sets production targets, what OPEC+ is, how OPEC affects oil prices, and the key criticisms and limitations of the organisation.

Key Takeaways

• OPEC is an alliance of 12 oil-producing nations that coordinates crude oil output to influence global prices.

• Founded in 1960, OPEC members hold over 80% of the world's proven oil reserves, giving the group enormous market power.

• OPEC+ — formed in 2016 — includes Russia and other non-OPEC producers, making the coalition even more powerful.

• When OPEC cuts production, oil prices typically rise. When output increases, prices tend to fall.

• OPEC's power is not absolute — US shale production and geopolitical tensions among members regularly challenge its influence.

• OPEC decisions affect not just energy markets but global inflation, trade, and economic growth.

Contents

1. What Is OPEC? A Simple Explanation

2. A Brief History of OPEC: From 1960 to Today

3. OPEC Members: Which Countries Belong?

4. How Does OPEC Control Oil Prices?

5. What Is OPEC+? How Russia Changed the Game

6. OPEC's Impact on the Global Economy

7. Criticisms and Limitations of OPEC

8. Frequently Asked Questions

9. Conclusion

What Is OPEC? A Simple Explanation

OPEC stands for the Organisation of the Petroleum Exporting Countries. It is an intergovernmental organisation — meaning it is made up of national governments, not private companies — whose primary purpose is to coordinate the oil production policies of its member states.

Think of OPEC like a group of farmers who all grow the same crop. If each farmer plants as much as they want and dumps it all on the market at once, prices crash and everyone loses money. But if the farmers agree to limit how much they each grow, they keep prices stable — and more profitable. OPEC works the same way, except the crop is crude oil and the stakes are trillions of dollars.

What Does OPEC Actually Do?

OPEC's core function is to set production quotas — official limits on how many barrels of oil each member country is allowed to produce each day. These quotas are agreed at formal OPEC meetings, which take place several times a year at OPEC's headquarters in Vienna, Austria.

By coordinating output across its members, OPEC can influence how much crude oil flows into the global market. Less supply generally means higher prices. More supply means lower prices. It is supply and demand economics at a geopolitical scale.

OPEC also publishes regular research on global oil markets, demand forecasts, and reserve data, making it one of the most cited sources of energy statistics in the world.

💡 Quick Fact: OPEC was founded on 14 September 1960 in Baghdad, Iraq, at a meeting attended by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela — the five founding members.

A Brief History of OPEC: From 1960 to Today

To understand OPEC's power, you need to understand why it was created. In the 1950s, global oil markets were dominated by a group of Western oil companies — known as the "Seven Sisters" — including Standard Oil, Royal Dutch Shell, and BP. These companies controlled pricing, and the oil-producing nations received a relatively small share of the revenues from their own resources.

Frustrated by this arrangement, five major oil exporters — Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela — met in Baghdad in September 1960 and founded OPEC. Their goal was simple: take back control of their oil and the income it generated.

The 1973 Oil Embargo: OPEC's Most Famous Moment

OPEC first demonstrated its true power in October 1973 during the Yom Kippur War. Arab OPEC members announced an oil embargo against the United States and other Western nations supporting Israel. The result was dramatic: oil prices quadrupled in just a few months, triggering fuel shortages, long queues at petrol stations, and a global economic recession.

The 1973 crisis proved that OPEC could move the entire world economy. It also prompted Western nations to form the International Energy Agency (IEA) in 1974 as a counterbalance, encouraging oil-consuming countries to hold strategic reserves.

OPEC Since 2000: Expanding Influence and New Challenges

In the decades since, OPEC's membership has grown and its influence has evolved. In 2016, OPEC formed OPEC+ — a broader alliance including Russia — to respond to the rise of US shale oil production, which had dramatically disrupted global supply. Today, OPEC+ collectively manages a significant portion of the world's oil output.

📊 Key Stat: According to the OPEC Annual Statistical Bulletin, OPEC member countries hold approximately 80.4% of the world's proven crude oil reserves — over 1.2 trillion barrels.

OPEC Members: Which Countries Belong?

As of 2025, OPEC has 12 member countries. Membership has changed over the years — some countries have joined, others have left. The United Arab Emirates briefly threatened to leave in 2020, and Angola formally withdrew in 2024.

Here is a breakdown of current OPEC members and their estimated production:

Saudi Arabia is widely regarded as the most powerful single member. It has the largest proven reserves, the lowest production costs, and — crucially — the most spare capacity, meaning it can ramp output up or down faster than any other nation. This gives Riyadh an outsized influence over OPEC decisions.

Want to learn more about production volumes? See our Largest Oil Producers in the World for a full global ranking.

How Does OPEC Control Oil Prices?

OPEC does not set the price of oil directly — it cannot walk into a market and put a price tag on a barrel. What it can do is control how much oil its members pump, which in turn affects global supply, and therefore the price that buyers are willing to pay.

Production Quotas: The Core Tool

At each formal OPEC meeting, ministers from member states negotiate and agree on a collective production target — and how that target is split among members. Each country receives a quota: a daily output ceiling it is expected to respect.

If the group decides to cut production, less oil flows into the market. Assuming demand stays the same, prices rise. If OPEC decides to increase production, more supply hits the market and prices tend to fall — all else being equal.

Why the Market Watches Every OPEC Meeting Closely

Oil traders, hedge funds, airlines, and governments all watch OPEC meetings with intense interest. A surprise production cut can send oil prices surging within minutes. An unexpected output increase can trigger a sell-off. The market reacts not just to what OPEC decides, but to what it signals about future intentions.

In December 2022, for example, OPEC+ announced a surprise cut of 2 million barrels per day — one of the largest in the alliance's history. Brent crude jumped by more than 2% the day of the announcement.

📊 Key Stat: According to the U.S. Energy Information Administration (EIA), OPEC+ members collectively produce around 40–45% of global crude oil output — enough to move markets significantly when they act in unison.

Compliance: The Weak Link

The biggest challenge for OPEC is enforcing its own quotas. There is no external authority that can fine or punish a member for overproducing. Countries sometimes cheat — pumping more than their quota allows — especially when they need extra revenue. Iraq, Nigeria, and Venezuela have historically been frequent over-producers relative to their agreed targets.

For a deeper look at how prices respond to OPEC decisions, see our Complete Guide to Oil Prices.

What Is OPEC+? How Russia Changed the Game

In 2016, oil prices had collapsed below $30 per barrel — catastrophic for oil-dependent economies. OPEC alone couldn't stabilise the market because non-member Russia was pumping at record levels. The solution was a historic deal: OPEC invited Russia and nine other non-member oil producers to coordinate production together. This expanded group became known as OPEC+.

Who Is in OPEC+?

OPEC+ includes all 12 OPEC members plus 10 additional countries. The most important non-OPEC members are:

• Russia — the world's third-largest oil producer, producing around 9–10 million barrels per day

• Kazakhstan — a major Central Asian producer

• Azerbaijan — key Caspian Sea producer

• Oman — provides the Dubai/Oman benchmark price for Asian markets

• Malaysia — Southeast Asian producer

Why OPEC+ Matters More Than OPEC Alone

Adding Russia to the alliance was transformative. Russia produces around 9–10 million barrels per day — almost as much as Saudi Arabia. Without Russian cooperation, any OPEC production cut could be offset simply by Russia pumping more. With Russia inside the tent, the agreement covers a far larger share of global supply.

OPEC+ now accounts for roughly 40–45% of global oil production. Its decisions have a much more powerful impact on global markets than OPEC alone ever could.

That said, the Russia-Saudi relationship inside OPEC+ has not always been smooth. In March 2020, a spectacular falling-out between Riyadh and Moscow triggered an all-out oil price war — with both sides flooding the market — and Brent crude crashed below $20 per barrel. The dispute was eventually resolved, and the alliance was restored within weeks.

For more on how Brent crude is priced globally, see our Brent vs WTI Explained.

OPEC's Impact on the Global Economy

OPEC's decisions do not just affect oil traders. They ripple through the entire global economy — from the petrol pump to the supermarket shelf to central bank interest rate decisions.

How Rising Oil Prices Affect Everyday Life

When OPEC cuts production and oil prices rise, the effects spread quickly:

• Petrol and diesel prices rise at the pump

• Transport and freight costs increase, pushing up the price of goods

• Airline ticket prices go up as jet fuel costs rise

• Agricultural costs increase (tractors, fertilisers, and pesticides are all oil-dependent)

• Overall inflation rises — potentially forcing central banks to raise interest rates

The International Monetary Fund (IMF) has estimated that a sustained $10 per barrel increase in oil prices adds approximately 0.3–0.5 percentage points to global inflation. For context, during the energy crisis of 2021–2022, oil prices rose by more than $60 per barrel — contributing significantly to the inflation surge seen in the UK, US, and eurozone.

The Oil Export Economies: Boom and Bust

For OPEC member states, higher oil prices mean government revenue, social spending, and economic growth. Saudi Arabia's government budget, for example, requires an oil price of roughly $70–$80 per barrel to balance its books — a figure known as the "fiscal breakeven" price. When prices fall below that level, the government faces deficits and spending cuts.

This is why OPEC members have such a strong incentive to keep prices supported — their entire national economic model depends on it. Read more in our article on Why Oil Prices Affect Inflation.

Criticisms and Limitations of OPEC

OPEC is one of the most powerful economic organisations in the world — but it is far from all-powerful. Critics and market observers point to several significant limitations.

The US Shale Revolution: OPEC's Biggest Rival

Perhaps the most significant challenge to OPEC's dominance in recent history has been the rise of US shale oil production. Thanks to hydraulic fracturing ("fracking") technology, American output surged from around 5 million barrels per day in 2008 to over 12 million by 2023 — making the US the world's largest oil producer.

US shale acts as a natural ceiling on oil prices. When OPEC cuts and prices rise, US producers can ramp up output relatively quickly and capture market share. This has significantly diluted OPEC's ability to maintain high prices for extended periods.

Internal Disagreements

OPEC decisions require broad consensus among very different countries with very different economic needs. Saudi Arabia — with low production costs and vast reserves — can afford to sustain lower prices for longer. Nigeria or Venezuela, with higher costs and more immediate fiscal pressures, often push for higher output to maximise short-term revenue. These tensions regularly spill into public disputes and quota violations.

The Long-Term Demand Question

The International Energy Agency (IEA) has projected that global oil demand could peak before 2030 as electric vehicle adoption accelerates and renewable energy expands. If long-run demand falls, OPEC's power to sustain high prices will erode over time — regardless of how tightly it manages supply. This is arguably the deepest existential challenge OPEC has ever faced.

💡 Quick Fact: The word "cartel" is often used to describe OPEC, though OPEC itself rejects that label. A cartel is a group of producers who cooperate to control prices in a way that harms consumers — exactly what OPEC's critics argue it does.

Frequently Asked Questions

What does OPEC stand for?

OPEC stands for the Organisation of the Petroleum Exporting Countries. It is an intergovernmental body founded in 1960, headquartered in Vienna, Austria. Its 12 current member countries include Saudi Arabia, Iraq, Iran, the UAE, Kuwait, Venezuela, Libya, Nigeria, Algeria, Gabon, Congo, and Equatorial Guinea. The organisation's primary aim is to coordinate oil production policies to stabilise markets and support member economies.

How does OPEC affect petrol prices?

OPEC influences petrol prices indirectly by controlling how much crude oil its members produce. Crude oil is the raw material from which petrol is refined, so when OPEC cuts production, crude oil prices typically rise — and those higher costs are eventually passed through to consumers at the pump. The size of the impact depends on the scale of the cut, global demand conditions, and how quickly non-OPEC producers respond.

What is the difference between OPEC and OPEC+?

OPEC is the original 12-nation alliance. OPEC+ is an expanded coalition formed in 2016 that includes OPEC members plus 10 additional non-member producers, most notably Russia. OPEC+ was created to give the alliance greater collective control over global supply, particularly to counterbalance the rise of US shale oil. OPEC+ collectively represents around 40–45% of global oil output.

Why did OPEC cut oil production in 2023?

In April 2023, several OPEC+ members — led by Saudi Arabia — announced a surprise voluntary production cut of around 1.16 million barrels per day, on top of existing cuts already in place. The stated aim was to support market stability amid concerns about slowing global economic growth and weaker oil demand. Brent crude prices rose by several dollars per barrel following the announcement, though prices remained volatile throughout the year.

Is the United States a member of OPEC?

No, the United States is not a member of OPEC. The US is actually the world's largest oil producer, pumping around 12–13 million barrels per day. As a major consumer and producer, the US has historically opposed OPEC's cartel-like structure. American shale production is one of the most significant competitive forces limiting OPEC's pricing power — when OPEC cuts and prices rise, US producers tend to fill the gap.

Conclusion: Why OPEC Still Matters

OPEC has been shaping the global economy for over six decades. It was born out of a desire by developing nations to control their own natural resources — and it changed the world by proving that a coordinated group of producers could genuinely move markets that affect every person on the planet.

Today, through OPEC+, the alliance remains one of the most consequential economic institutions in existence. Its decisions influence inflation, trade balances, government budgets, and the cost of living for billions of people. Understanding what OPEC is — and how it works — helps you make sense of energy news that would otherwise seem distant and technical.

• OPEC is a 12-nation alliance that coordinates oil production to influence global crude prices, founded in 1960.

• OPEC+ expanded the alliance to include Russia and others in 2016, giving the group control over roughly 40–45% of global supply.

• OPEC's power is real but limited — US shale production, internal disagreements, and the long-term energy transition all constrain its influence.

Sources

• OPEC — Annual Statistical Bulletin: Member production, reserves, and market share data

• U.S. Energy Information Administration (EIA) — Short-Term Energy Outlook: Global oil production and supply data

• International Energy Agency (IEA) — Oil Market Report: Global demand forecasts and OPEC+ analysis

• International Monetary Fund (IMF) — World Economic Outlook: Oil price impacts on global inflation

• World Bank — Commodity Markets Outlook: Oil price trends and economic impact analysis